LUKOIL’s share in the equity capital of Neftochim Bourgas AD (Bulgarian refinery) has been increased to 93.16%. LUKOIL resumed construction of a polypropylene production line at OOO Stavrolen.

An extraordinary shareholders meeting of OAO LUKOIL was held on January 24, 2005 in Moscow. The shareholders approved amendments and addenda to the Charter of OAO LUKOIL which increase the role of minority shareholders in decision-making involving major transactions with the Company’s assets. Kevin Meyers, a ConocoPhillips representative, was elected member of the Board of Directors.

In February LUKOIL president Vagit Alekperov paid a working visit to Venezuela to discuss progress and cooperation prospects based on the Memorandum of Understanding signed by LUKOIL and PdVSA in November 2004 in the framework of an official visit of the Venezuelan President to Russia.

Vagit Alekperov, OAO LUKOIL President, and Timur Kulibayev, first vice-president of Kazakhstan's state oil and gas company KazMunayGaz, signed constituent documents of the joint venture Caspian oil and gas company set up to develop Khvalynskoye oil field (the Caspian Sea) and to transport and market hydrocarbon material and its processing products.

LUKOIL Downstream Hungary has acquired 15 service stations from the Austrian company ABA. Due to the acquisition, the total number of service stations currently owned by the Company reached 26, which slightly exceeds a 3% share of the Hungarian retail market.

LUKOIL-Finland signed a purchase and sale agreement for shares of Oy Teboil Ab and Suomen Petrooli Oy, incorporated in Finland, and consequently secured sole control over the two companies. The transaction value was USD 160 million.

On March 29, 2005 Vagit Alekperov, OAO LUKOIL President, and Alexei Miller, BoD Chairman of Gazprom, signed a general agreement on strategic partnership from 2005 to 2014. The companies have agreed to jointly implement oil & gas exploration and development projects in the Yamalo-Nenetsky Autonomous District, the Nenetsky Autonomous District, Russian sector of the Caspian Sea, Republic of Uzbekistan and other regions.

On April 5 a solemn ceremony dedicated to commissioning of the Nakhodkinskoye gas field was held in the Yamalo-Nenetsky Autonomous District.

Moody's Investors Service, the international rating agency, upgraded OAO LUKOIL’s senior implied rating to Ba1 from Ba2. At the same time, the rating agency upgraded LUKOIL's senior unsecured issuer rating from Ba3 to Ba2. All ratings have a stable outlook.

LUKOIL securities trading volumes on the London Stock Exchange totaled USD 2.66 billion in April 2005 being the highest since the launch of the LUKOIL securities on the LSE in 2002.

In May another group of Iraqi experts arrived in Volgograd and Kogalym for internships at OOO LUKOIL-Nizhnevolzhskneft and OOO LUKOIL-West Siberia. The internship is based on the provisions of the Memorandum of Understanding and Cooperation, signed in March 2004 in Baghdad between LUKOIL President Vagit Alekperov and Iraqi Oil Minister Ibrahim Bahr al-Uloum.

Vagit Alekperov, OAO LUKOIL President, received the Woodrow Wilson Award for Achievements in Corporate Citizenship in Washington, DC. The Board of Trustees of the Woodrow Wilson International Center for Scholars gives this prestigious award to those executives of the state governance and businesses who aim at improvement of life standards both in their home country and abroad.

Vagit Alekperov, President of LUKOIL, and Vlado Buckovski, Prime Minister of Macedonia, signed a Memorandum on Cooperation which provides for cooperation development in investment projects implementation aimed at enhancing oil products market infrastructure in Macedonia.

LUKOIL is the first Russian oil company to have commenced a large-scale production of low sulfur environmentally friendly diesel fuel (LUKOIL EURO-4) and launched it to the market. The fuel meets European environment requirements for EN-590:2004 diesel fuel (Euro-4).

General Shareholders Meeting of OAO LUKOIL was held in Moscow on June 28 to approve the Annual Report of the Company for the year 2004 and the Accounting Report for the past fiscal year. President of OAO LUKOIL Vagit Alekperov delivered his report on the results of the Company's operations in 2004 and development prospects. Last year, the Company did not only attain the best financial results in its entire history, but also confirmed its positions as the leading business group in Russia. LUKOIL Group's net profit in 2004 exceeded 4 bln. USD which is by 74% more than in the previous year (excluding the sale of LUKOIL's share in the Azeri-Chirag-Gyuneshli project and the effect from changing the accounting policy). Return on average capital employed came to more than 19% against 14% in the year 2003. Capitalization of the Company by the end of the year reached 26 bln. USD. “Consolidated shareholder revenue is 34%”, said the Company CEO.

Dmitri Tarasov, OAO LUKOIL’s first Vice-President, and Zeljko Popovic, Director General of the Oil Industry of Serbia (NIS), signed a Memorandum of Intent aimed at setting up a joint venture. The joint venture is to be created on a parity basis to ensure long-term secure crude supply ranging from 1.5 to 4.5 mln. tons per year for conversion at NIS refineries on processing terms.

On June 30, 2005 OAO LUKOIL and ConocoPhillips set up OOO Naryanmarneftegaz joint venture to develop resources in the Timano-Pechora oil and gas province which is in the north of European Russia. ConocoPhillips has a 30 percent stake in the joint venture. The amount of the transaction involving acquisition of this share is approximately USD 500 million. The companies will govern the joint venture on a parity basis.

Vagit Alekperov, OAO LUKOIL President, and Igor Levitin, Transport Minister of the Russian Federation, signed an Agreement of Understanding and Intent between the Ministry of Transportation of the Russian Federation and the Company. The Agreement anchored the intent of both parties to cooperate in terms of information exchange to achieve common goals in developing the transport infrastructure. The document also emphasized the importance of attracting businesses to create and implement mechanisms of partnership in transport industry between the state and the private sector.

 

In July the Company launched a new stage of reconstruction and upgrading at OAO LUKOIL-Nizhegorodnefteorgsintez, aimed at improvement of technical and economic performance indicators, attaining high quality of manufactured petroleum products in accordance with Euro-4 standards and cutting down industrial burden on the environment. Total capital investment is estimated at around 500 mln USD. The implementation of the Program is planned in 2009. While upgrading refinery facilities, the production volume is to remain at the same level.

 

OAO LUKOIL Management Committee has agreed to launch large scale reconstruction and upgrading of Odessa refinery. The main focus will be made on constructing catalytic cracking facility and a power supply unit. Installations for gasoline and vacuum gas oil hydrotreatment, production of hydrogen, sulphur and high-octane components for gasolines. Diesel fuel hydrotreatment facility, atmospheric/vacuum distillation unit and off-plot facilities will also be constructed. The total amount of investment allocated for the project is estimated at around 320 mln UDS. The plan is to upgrade the refinery within a three-year period.

The volume of LUKOIL securities trading during the three years the Company has been listed on the London Stock Exchange (LSE) amounted to around 50 bln USD. Starting from 2004, LUKOIL securities keep leading positions in terms of liquidity among financial instruments of foreign companies traded on the London Stock Exchange (IOB trading system).

 

In Volgograd at OOO LUKOIL-Volgogradneftepererabotka the first stage of constructing green coke calcination facility with a 100 thous ton capacity was commenced. The site was constructed in the framework of refinery general development plan for the period of up to 2014. In 2009 the second installation stage will be implemented, with the capacity reaching 280 thous tons per year, which would provide calcination of the whole coke produced at the facility.

 

LUKOIL has published its first Sustainable Development Report. The main quantitative and qualitative Company operating results in 2003-2004 in the major regions of Company presence were published. The report was confirmed by ZAO Buro Veritas Rus, an independent auditor. Vagit Alekperov, President of OAO LUKOIL was quoted as saying that preparation and publication of the Company’s Sustainable Development Report was an important milestone on the way to a new quality of corporate governance. LUKOIL’s next social report will be released in two years.

 

LUKOIL was the first Russian company to engage in supertanker petroleum-product transportation. On September 20, the Company dispatched its first petroleum-product supertanker to Europe from the LUKOIL-2 oil terminal (located on the Isle of Vysotsky, Leningrad Region).

 

By Order of Vladimir V. Putin, President of the Russian Federation, Sergey Kukura, First Vice-President of ОАО LUKOIL, was presented with the Order of Honor in recognition of his labor achievements and many years of conscientious work.

 

LUKOIL-Neftekhim (ОАО LUKOIL petrochemical holding), launched a sodium cyanide project at ООО Saratovorgsyntez. Investment in this project will amount to 817 mln RUR. The sodium cyanide production plant, with annual sodium cyanide output of 17 ths metric tn, will be commissioned in 2007. Processing of hydrocyanic acid into sodium cyanide is based on DuPont technology, which ensures 100% neutralisation of hydrocyanic acid- and acrylonitrile production waste.

 

LUKOIL ranked third among Russia’s 75 biggest companies in terms of reducing environmental impact in 2000-2003. This conclusion is found in the Social and Environmental Liability and Russian Business Ratings, a directory prepared by the International Social and Environmental Union and Nera, an independent environmental rating agency, with support from the World Bank. The results of LUKOIL’s nature-protection activities for 2000 to 2003 reveal that the specific indices of air pollutant emissions, water consumption and polluted discharges were significantly lower than the industry average.

 

LUKOIL introduced a corporate system of wetting control over the technological condition of tankers chartered to carry the Company’s oil. The wetting control system was developed by the Oil Companies International Maritime Forum (OCIMF). LUKOIL was the first Russian oil company to join OCIMF, become member of its executive committee and submit reports on tanker wetting inspections conducted on behalf of the Company to the database of the aforementioned international organisation.

LUKOIL and Minsk Automotive Factory (MAZ) (Republic of Belarus) signed an agreement on co-operation and technological partnership which provides for cooperation in production, marketing and development of lubricants and special liquids, including engine and transmission gear oils for initial car filling. The cooperation agreement concluded with MAZ is a milestone in developing the Company’s partnership with automobile manufacturers not only in Russia (LUKOIL had previously signed similar agreements with ОАО Kamaz and ОАО Avtovaz), but in other countries as well.

 

A meeting of ОАО LUKOIL’s Board of Directors held in Usinsk approved the Company’s operational results and targets for Timano-Pechorsk region as well as the Long-Term Development Program for ОАО LUKOIL’s gas business. LUKOIL’s Strategic Development Program for 2005-2014 provides for a 33 per cent rise in the share of gas in the Company’s overall hydrocarbon output. The key objective of the Program is to add value by commercializing gas reserves. The Program’s main points include defining the optimum gas marketing strategy, developing an integrated approach to implementing further gas projects, and controlling the whole value chain, covering production, transportation, treatment and marketing. The Company’s specialists have also elaborated a sales strategy for gas projects of the LUKOIL Group organizations, including gas supplies to energy companies. The Company conducted a pre-investment study and defined the most efficient configuration for the Caspian petrochemical complex.

 

On October 28 Vladimir V. Putin, President of the Russian Federation, presented Vagit Alekperov, President of OAO LUKOIL, a Fourth-Class Order ‘For Services to the Country’. Head of the Company was given this high official award in recognition of his great contribution to development of the fuel and energy complex. At the award-giving ceremony, Vagit Alekperov was quoted as saying that he considered the award not merely as a recognition of his personal contribution to the development of the oil industry, but also as a tribute to the hard work of all oil sector workers in Russia, and that the achievements LUKOIL had managed to attain resulted primarily from their ultimate professionalism and commitment of the Company’s staff.

 

The LUKOIL brand ranked fifth in a rating featuring Russia’s forty most valuable brands and was evaluated at 688 mln USD. The rating was done by Interbrand Zintzmeyer & Lux AG (Interbrand Group) in November and its methodology is certified by leading international audit firms.

 

ОАО LUKOIL’s Management Committee decided to create a 100% subsidiary, OOO LLK International, which will be vested with administrative functions in lubricant production and marketing. OOO LLK International will become a unified centre of responsibility for this line of the Company’s business. Setting up a company for lubricant production and marketing will logically conclude the structural reform of governance of this line of business which was initiated in February 2005.

 

Vagit Alekperov, President of OAO LUKOIL, ranked first in a rating featuring Russia’s oil and gas sector executives compiled by Institutional Investor, an international magazine, based on a survey conducted among analysts and experts of the world’s largest investment companies.

 

LUKOIL fully implemented its Corporate Program for Environmental Rehabilitation of Polluted Territories and Prevention of Accidental Oil Spillages in the Republic of Komi in 2000-2005. The Company allocated 4.6 bln RUR for environmental activities in the Republic.

 

The Company and Russia’s Ministry of Emergencies concluded an agreement on interaction aimed at ensuring fire security, and preventing and controlling emergencies caused by accidental oil and petroleum product spillages. The Company gives an annual 5 bln RUR to finance emergency prevention activities. Over 2.5 thous employees of the Fire Service of Russia’s Ministry of Emergencies provide fire protection for LUKOIL Group organizations.

 

LUKOIL obtained a 100% stake in ZAO SeverTEK by signing a contract with Neste Oil, a Finnish company, hammering the purchase of a 50% stake in the company for 321.5 mln USD. Commenting on the deal, Vagit Alekperov, President of OAO LUKOIL, was quoted as saying that consolidation of oil producing assets in the Republic of Komi and the Nenets Autonomous District fully complies with LUKOIL’s development strategy in the oil and gas bearing Timano-Pechorskaya Province. As of the beginning of 2005 estimates of Miller and Lents, a US company, suggests that proven reserves of SeverTEK amounted to 235 mln barrels of oil.

 

Vagit Alekperov, President of OAO LUKOIL, met with Khoshiyar Zibari, Iraq’s Minister of Foreign Affairs. In 2005, the Company supplied humanitarian aid worth 2 mln USD to Iraq. In 2006, supplies will increase to 3 mln USD. Iraq’s Minister of Foreign Affairs underlined that LUKOIL, as a company enjoying high technological experience and considerable financial capacity, is welcome to take part in any of the energy projects underway in Iraq, including Western Kurna-2.

 

ОАО LUKOIL’s Board of Directors listened to a report on Downstream business segment operations and set the procedure of handling securities for persons who have access to insider information which may affect the value of ОАО LUKOIL. Capital expenditure in this business segment amounted to around 3.5 bln USD in 2003-2005, thus ensuring positive dynamics of the key indicators. The Board of Directors also considered the issue of improving corporate governance. The UK Financial Services Authority released Rules for Information Disclosure in 2005, in this context ОАО LUKOIL’s Management Committee approved operational rules for LUKOIL Group organizations regarding transactions in ОАО LUKOIL securities conducted by persons which have access to insider information.

 

LUKOIL Overseas Holding Ltd. (LUKOIL’s 100% subsidiary) purchased a 100% share of Nelson Resources Limited for 2 bln USD. Nelson Resources Limited is involved in hydrocarbon production projects in the Western part of the Republic of Kazakhstan at Alibekmola, Kozhasai, Karakuduk, North Buzachi and Arman fields. In the majority of these projects, Nelson Resources Limited acts as a joint operator. In addition, the company is party to an option agreement covering two research blocks in the Kazakhstan sector of the Caspian Sea, South Zhambai and South Zaburunie. Proven and estimated hydrocarbon reserves of Nelson Resources Limited amount to 269.6 barrels of oil. Kazakhstan is a key region for development of our international strategy. Vagit Alekperov, President of LUKOIL, was quoted as saying that the purchase of Nelson would make a significant contribution to the Company’s Caspian region assets.

 

LUKOIL ranks 9^th in Europe and 16^th in the world among the world’s 250 largest energy companies in 2005, according to a survey conducted by Platts, a US energy agency. The companies included in this rating were estimated in terms of asset volume, revenues, income and internal rate of return.

 

LUKOIL signed sponsor support contracts with Russia’s professional sport teams and organizations, as well as a sponsor contract with Russia’s Skiing Federation, envisaging sponsoring training of men’s and women’s national teams for the Olympic Games in Turin. A letter of intent was drawn up and signed between ОАО LUKOIL and the RTR-Sport TV channel, envisaging sponsorship of TV broadcasts from the Olympic Games in Turin. Vagit Alekperov, President of LUKOIL, was quoted as saying that he hoped the Company’s sponsorship would help Russian athletes achieve best results in both domestic and international competitions and contribute to the development of children’s sport in the country.

 

LUKOIL-AERO (LUKOIL’s 100% subsidiary) purchased Balandino fuelling complex (TZK), located at the international airport of Chelyabinsk, from ОАО Aviakompaniya Sibir. OOO LUKOIL-AERO currently refuels aircrafts by means of its own refuelling complexes located at the airports of Nizhny Novgorod, Perm, Volgograd, Tyumen and Chelyabinsk. Development of jet-refuelling business is envisaged by the LUKOIL Group Strategic Development Program and suggests expanding the jet-fuel sales market and creating an advanced network of company-owned refuelling complexes at airports in Russia and abroad.

On January 19th in Astana, Vagit Alekperov, LUKOIL’s president, Uzakbai Karabalin, president of National oil and gas company KazMunaiGaz, and Bahytzhan Hasanov, Director General of KazmunaiTeniz, signed an agreement under which LUKOIL purchased a 50% stake in the PSA for the Tub-Karagan off-shore component. A contract agreement on geological explorations on equal basis was also signed for the Atashsky off-shore component. The documents were signed during Vladimir Putin’s official visit to Kazakhstan.

LUKOIL purchased 795 gas stations located in New Jersey and Pennsylvania from ConocoPhillips. The purchase value totaled 265,750,000 USD. Annual sales of the purchased gas station network amount to 1.2 billion gallons of oil products, practically doubling the Company market share in the North East of the USA.

LUKOIL products were ranked highest in the Best motor oil category of Russia’s Popular brand 2003 contest. In accordance with the terms of the contest LUKOIL gained the Popular brand title and the right to stick the Popular brand label on its products for two years.

LUKOIL-Zapadnaya Sibir started production drilling on Nakhodka gas field of the Bolshehetskaya basin in Yamalo-Nenetsk autonomous district. Gas reserves of Nakhodka field are estimated at 275.3 billion cubic meters of gas.

LUKOIL started production drilling on Kravtsovskoye (D-6) field on the Baltic Sea shelf. Geological exploration performed by LUKOIL-Kaliningradmorneft showed that geological resources of ?1+?2 oil category on Kravtsovskoye field came to 21.5 million tons, whereas the extracted reserves equaled 9.1 million tons.

In Riyadh, the capital of Saudi Arabia, LUKOIL’s president Vagit Alekperov and Ali al-Naimi, Saudi Arabia’s Minister for Oil and Mineral resources, acting on behalf of the government, signed a contract for exploration and production of gas and gas condensate fields in “A” Block. The term of the contract is 40 years.

On March 10, 2004, LUKOIL’s president Vagit Alekperov and Iraq’s Oil Minister Ibrahim Bahr al-Uloum participated in negotiations held in Baghdad, which covered a wide range of cooperation issues. Memorandum of understanding and cooperation was signed after the meeting.

The Board of Academics of the Russian State Academy of Civil Service under the patronage of the President of the Russian Federation awarded a degree of the Academy’s honored doctor to LUKOIL’s President Vagit Alekperov. The degree was awarded for a significant contribution the Company president made into development of Russia’s fuel and energy industry.

LUKOIL completed estimation and independent audit of oil and gas reserves as of January 1, 2004. The Company maintains the lead in terms of oil and gas proven reserves: it ranks first among Russian oil companies and second among largest private oil and gas companies, with ExxonMobil at the top of the list. Data audited by Miller and Lents (USA) suggested that LUKOIL’s hydrocarbon proven reserves as of January 1, 2004, amounted to 20.056 billion barrel of oil equivalent, including 15.977 billion barrel of oil and 24.473 trillion cubic feet of gas. Compared to January 1, 2003, LUKOIL’s hydrocarbon proven reserves rose by 4%, including 4.7% in oil and 1.3% in gas.

Readers of Global Finance magazine recognized LUKOIL as Russia’s best oil and gas company. The participants of the magazine survey had a great number of criteria to assess Russian companies. Among these were: corporate governance standards, financial transparency, quality of purchased assets and environmental liability. About 15 thousand readers of Global Finance participated in the survey. The circle of readers included investment banking professionals, executives of large companies and bank governors.

In 2004 Standard & Poor’s international rating agency ranked LUKOIL’s information transparency highest among all Russian oil companies. The Company also scored 6th among 50 largest Russian companies, with telecommunication companies topping the list. As compared to 2003 LUKOIL increased its rating positions by 2 points.

LUKOIL signed a cooperation agreement with the International Federation of Chemical, Energy, Mine and General Workers' Unions and the Russian Oil and Gas Industry and Construction Trade Union to improve production relations and develop an adequate approach to operational activity in the LUKOIL Group operating worldwide.

LUKOIL’s securities trading on the London stock exchange (LSE) in May 2004 had an unprecedented high and amounted to 2.41 billion USD. LSE trading dynamics shows that the investors’ interest in the Company’s securities is on the rise. In 2003 monthly trading volume totaled 801 million USD, whereas in the first four months of 2004 it amounted to 1.52 billion USD.

In June the first stage of LUKOIL-II distribution and transshipment complex built by the Company for oil and oil products export, was put into operation in Vysotsk, Leningrad region. The ceremony was held during the 8th St.-Petersburg Economic Forum. The capacity of the terminal’s first stage is 4.7 million tons a year. Full estimated capacity amounts to approximately 12 million tons a year.

A Production sharing agreement on Kandym-Khauzak-Shady project was singed in Tashkent. It foresees natural gas exploration in Bukharo-Hivinsky region in the South West of the country.

The document was signed during the official visit of Russia’s President Vladimir Putin to the Republic of Uzbekistan. The term of the agreement is 35 years. Commercial production of gas is to be launched in 2007.

On June 24 an annual General shareholders meeting was held in Moscow, where the Company’s 2003 Annual operations report and 2003 financial statements for the 2003 accounting period were approved. In 2003 the Company managed to maintain sustainable sales growth and gain an unprecedented net profit of 3 billion 701 million USD (against 1,843 million USD in 2002).

In Kstov (Nizhny Novgorod region) LUKOIL Nizhegorodnefteorgsintez launched a catalyst reformer with on-line LF-35/21-1000 catalyst rejuvenation, its capacity as high as 1 million tons of raw material per year.

In July LUKOIL-Kaliningradmorneft launched commercial operations of Kravtsovskoye (D-6) field on the Baltic Sea shelf.

In September the Russian Managers Association published a fifth release of Russian managers professional reputation rating. LUKOIL’s President Vagit Alekperov ranks second among Russia's top twenty business leaders. Twelve executives of the Company's subsidiaries were among 1000 best performing Russian professional managers.

ConocoPhillips, one of the Company’s affiliated parties, won the auction for 7.59% of LUKOIL’s authorized and issued equity shares, which belong to the state, for 1.988 billion (30.76 per share). LUKOIL and ConocoPhillips announced their agreement to form a broad-based strategic alliance, in which ConocoPhillips will become a strategic equity investor in LUKOIL. Two large integrated oil and gas companies agreed to create a joint venture to develop hydrocarbon reserves in the northern part of Timan-Pechora oil and gas province (north of European Russia).

A deep conversion processing plant was put into operation at LUKOIL-Permnefteorgsintez, which allowed to increase motor fuel production by more than 1 million tons a year and to receive petroleum products, which comply with perspective qualitative and environmental European standards.

In October, for the second consecutive time, LUKOIL was awarded certificates of conformity for its production, environmental safety and work safety management systems, which complied with the ISO 14001 international standard and OHSAS 18001 standard.

In Astrakhan the Company started upgrading its base semisubmersible bearing unit to use as an ice-proof fixed drilling platform on Yuri Korchagin field in the North Caspian shelf.

A ceremony to mark the start-up of modernized Petrotel-LUKOIL refinery was held in Ploesti, Romania. LUKOIL invested 120.7 million USD in the plant reconstruction. Eighteen technological and auxiliary facilities were upgraded, including diesel fuel treatment unit, coker unit and purification facilities. The modernization allowed to reduce hazardous emissions by 50%. Environmental expenditure under the reconstruction program amounted to over 6 million USD.

In November the Production Sharing Agreement (PSA) for the Kandym group of fields, Khauzak, Shady and Kungradsky blocks came into effect.

LUKOIL’s two documentary interest-bearing inconvertible bonds were placed on Moscow Interbank Currency Exchange. The number of bonds in the issue was 6,000,000 bonds, total size of the issue is 6 billion rubles. Bonds mature in 5 years.

LUKOIL and Eurasia Drilling Company Limited (EDC) signed a sale and purchase agreement of LUKOIL’s 100% stake in the charter capital of LUKOIL-Bureniye. The transaction value is 130 million USD.

In December LUKOIL and Russian Railways signed an agreement on railway deliveries of oil and oil products to LUKOIL-II distribution and transshipment complex at Vysotsky Island, Leningrad region. The Companies also signed an agreement which envisages LUKOIL’s deliveries to China of up to 3 million tons of oil through Russian Railways if the economic environment remains favorable.

LUKOIL completed a transaction to acquire ENI Group's 50% interest in LUKAgip N.V. joint venture initiated in June of 2004.

LUKOIL was awarded the title Company of the Year and became winner in the Business Reputation category at the VI National business awards, founded by RosBusinessConsulting. The Company’s Annual report rated first in the Internet category of the VI contest held by Expert magazine. In addition to this LUKOIL was one of the winners of the VII Annual reports contest and corporate Web-sites, which is held by Russian Trading System (RTS) and Securities Market magazine.

LUKOIL also received the Impeccable Reputation award from Komsomolskaya Pravda readers and journalists.

Environmental Movement of Concrete Actions, a public organization, awarded LUKOIL the title of Environmentally perfect company for a significant contribution in environmental protection.

In April, LUKOIL completed an evaluation and independent audit of oil and gas reserves as of January 1, 2003. According to the data audited by Miller and Lents, Ltd. (USA), the consolidated reserves of OAO LUKOIL reached 19.7 billion barrels of oil equivalent thus placing the Company second among the world public oil companies in terms of reserves.

By the end of the month an agreement to sell LUKOIL's 10% interest in the Azeri-Chirag-Gyuneshli project to INPEX Southwest Caspian Sea Ltd. was signed. The approximate size of the transaction amounted to USD 1.354 billion.

LUKOIL commenced production of Jet A-1 fuel within the framework of the program aimed at improving product quality. LUKOIL efforts in commercializing the jet fuel production were approved by the International Civil Aviation Organization (ICAO).

Ravil Maganov, First Vice-president of OAO LUKOIL, and his counterpart from OAO Rosneft Nikolay Borisenko signed a number of contracts today on the purchase and sale of assets belonging to the following three companies: OAO Arkhangelskgeoldobycha (AGD), ZAO Rosshelf and OOO Kompaniya Polyarnoye Siyaniye (Polar Light ns Company).

In August, the Karachaganak Processing Complex and a 650-km long liquid hydrocarbon pipeline from the Karachaganak oil and gas condensate field to the city of Atyrau were put into operation.

During the same month a credit agreement to finance the construction of an oil terminal on the island of Vysotsky, Leningrad Oblast, was signed. According to the document, the NBK Fund, a private American investment fund, shall grant a 225 million USD credit for 12 years under the OPIC guarantees.

LUKOIL won the tender for the right to acquire 79.5% interest in "Beopetrol" of Serbia. The company is controlling about 20% of the Serbian retail fuel market.

Vladimir Putin, President of the RF, participated in the opening ceremony of LUKOIL gas filling stations in New York. The launch of retail outlets under the Company's brand took place within the framework of the restructuring program that is being implemented by LUKOIL in the USA upon acquiring "Getty Petroleum Marketing, Inc." of USA.

Moody's Investors Services, an international rating agency, awarded OAO LUKOIL with Ba2 long-term credit rating and Ba3 rating of unsecured public offerings denominated in foreign currency. The rating forecast is "stable".

Vagit Alekperov, President of OAO LUKOIL, and Alexey Miller, Chairman of the Board of OAO Gazprom, signed a gas supply agreement. According to the signed document, LUKOIL will sell to GAZPROM up to 0.75 bcm in the 4th quarter of 2005 and up to 8 bcm in 2006 of natural gas produced by the Company at the Nakhodka field of the Bolshekhetskaya Depression (Yamal Nenets Autonomous Okrug).

LUKOIL and Miller and Lents (USA) completed an evaluation of the Company's reserves as of January1, 2002, as required by the US Society of Petroleum Engineers (US SPE). Proved oil and gas reserves equaled 16.6 billion barrels of oil equivalent (2.3 billion tons). Reserves growth was 11% for the year.

The Company started construction of an oil terminal on the island of Vysotsky (Leningrad Oblast). Its designed throughput capacity is 10.7 million tons. The first complex of the terminal is scheduled for commissioning in the 4th quarter of 2003.

LUKOIL Overseas Holding Ltd., a 100% subsidiary of OAO LUKOIL, purchased a share of participation in the WEEM concession (Hurgada, Egypt) from the Canadian Naftex Energy Corporation, and became a sole contractor and investor of the concession agreement on oil exploration and production, as well as the project operator. Other parties of the concession are the Egypt Government Petroleum Company (EGPC) and the Government of Egypt.

LUKOIL become the first Russian company that obtained a full secondary listing on the London Stock Exchange by including its securities to the UKLA Official List. The Company listed the whole of its ordinary shares and Level-1 American Depositary Receipts (ADR). The shares of the Company freely trade on the London Stock Exchange in the form of ADRs.

A General Agreement on strategic partnership for the period of 2002-2005 was signed between OAO LUKOIL and OAO GAZPROM. The Agreement provides for developing mutually beneficial cooperation in the area of oil and gas exploration, production, transporting and processing, as well marketing of oil and gas, oil and gas products, chemicals and petrochemicals. It also deals with electrical and thermal energy generating and marketing.

The Company placed USD 350 million of bonds, convertible into Global Depositary Rreceipts (GDRs) issued against LUKOIL shares.

LUKOIL concluded an agreement with INPEX Corporation to sell its interest in the "Azeri-Chirag-Gyushenli" project.

A government-owned stake in LUKOIL representing 5.9% of the Company ordinary shares worth USD 775 million at $15.5 per share was placed on the London Stock Exchange.

The Company acquired a controlling interest of OAO "Yamalneftegazdobycha" that possessed four licenses to develop the Bolshekhetskaya Depression properties.

LUKOIL acquired OAO "NORSI-OIL" that incorporated one of the Russia's major refineries - OAO "NORSI".

The Company acquired OAO "Arkhangelskgeoldobycha" (over 20 licenses to develop oil and gas fields in the Arkhangelsk Oblast and Yamal Nenets Autonomous Okrug).

The Company acquired "Getty Petroleum Marketing, Inc." (USA) that owns about 1,300 gas filling stations in 13 states of the northeastern USA.

The construction of a linear pipeline portion of the Caspian Pipeline Consortium (CPN) in which the Company participates was completed.